The amount of oil the Texas-based company produced in the first three months of the year dropped 7.7pc compared with a year earlier. Oil prices, meanwhile, averaged 12pc higher in the quarter as hopes for the global economy strengthened and tensions over Iran's nuclear programme escalated.

The decline contributed to an 11pc drop in Exxon's overall profits in the quarter to $9.45bn (£5.8bn). That fell short of Wall Street's expectations and helped send the shares down 1.7pc to $85.35 in early afternoon trading.

Analysts said that the drop in production underlined the challenge the world's biggest energy companies face in tapping new reserves of oil to meet rising global demand. Rex Tillerson, Exxon's chairman and chief executive, said that the company is working on several new fields that will drive production up by between 1pc and 2pc a year over the next four years. Last year Exxon struck a $3.2bn deal with Russia's Rosneft that will allow the US company to drill for oil in the Arctic Ocean.

However, the bigger headache for Exxon is the sharp drop in natural gas prices. Exxon was one of the first companies to make a big bet that natural gas will play a central role in meeting America's energy needs when it paid $41bn for rival producer XTO Energy in 2009. A glut of production and investment in the country's natural gas fields since then has helped drive prices to the lowest in 10 years. They dropped 40pc in the first quarter.

The decline in production and profits overshadowed Exxon's decision to increase its quarterly dividend by 21pc to 57 cents. The increase makes the energy company, which has been eclipsed by Apple as the world's largest company by market value, the biggest dividend payer in the world.